Q&A Hero

Q: Under which of the following contract devices for using real estate as security for an obligation does the seller usually retain title until the property is paid for? A. Mortgage B. Land sales contract C. Deed of trust D. Strict foreclosure

Q: Linda and David borrowed $10,000 from the Smart Loan Company and executed a mortgage on their home to Smart Loan as security for the note. Smart Loan did not record the mortgage. If Linda and David sell their home to Sheila, and Sheila is not aware of the mortgage: A. the mortgage is as valid for Sheila as to Linda and David. B. the mortgage is not valid for Sheila. C. the mortgage is valid for future creditors only. D. the mortgage is invalid for all parties.

Q: If mortgagors sell the interest in their property without the consent of the mortgagee: A. they have acted illegally. B. the sale does not affect the mortgagee's interest in the property. C. the mortgagee will lose his/her interest in the property. D. the mortgagee will lose all claims against the mortgagor.

Q: _____ implies that the creditor has no right to a deficiency and the debtor has no right to any surplus. A. Foreclosure B. Mortgage C. Strict foreclosure D. Possessory lien

Q: This is a contract device for securing the balance due the seller on the purchase price of real estate. A. Deed of trust B. Land contract C. Mortgage D. Materialman's lien

Q: In a deed of trust transaction: A. the buyer agrees to pay the purchase price over a period of time. B. the surplus proceeds from a sale of property goes to the trustee. C. the trustee can sell the property at a judicial sale. D. the borrower deeds to the trustee the property that is to be put up as security.

Q: Which of the following is true of a land contract? A. The seller agrees to convey the title when the full price is paid. B. The trustee holds legal title to the property put up as security. C. If a buyer defaults, the seller does not have the right to declare a forfeiture. D. The title to property is conveyed if partial payment has been made.

Q: Possessory liens give the lienholder the right to keep possession of the debtor's property: A. for a reasonable period of time after the debt has been paid. B. until the debtor regains possession by fraud or other illegal act. C. until the reasonable charges for the service have been paid. D. even if possession of the goods has not been entrusted to the lienholder.

Q: Artisans who retain goods are liable for conversion if they: A. return the goods before the debt has been paid. B. keep the goods without the right to a lien. C. lose the goods to the debtor in a fraudulent manner. D. sell the goods.

Q: An employee from Dr. Don's Automobile Hospital, Inc. made a house call to Horner's home to repair his car. It was repaired in Horner's garage. When Horner defaulted on the bill, Dr. Don went to his house to take possession of the car, claiming that the corporation had a lien on the car by virtue of the work performed on it. On the basis of these facts, it can be said that: A. the employee is entitled to the possession of the car because he was the one who performed the repairs on the car. B. Dr. Don is justified in his actions as the corporation did have a lien on the car by virtue of the work performed on it by its employee. C. the corporation has no lien on the car because the employee did not notify Horner at the time of the repairs that a lien would be claimed. D. the corporation has no lien on the car, because its employee came to Horner's house to make the repairs and so Horner never gave up possession of his car to Dr. Don's.

Q: Which of the following statements concerning foreclosure of liens is true? A. The lienholder need not give notice to the debtor for holding a sale of the possessed goods. B. Even if there is a statutory procedure, the lienholder must first bring a lawsuit against the debtor. C. The right of a lienholder to possess goods does not automatically give the lienholder the right to sell the property. D. The lienholder cannot have the property sold at a judicial sale.

Q: _____ of the Uniform Commercial Code sets out a comprehensive scheme for regulating security interests in personal property and fixtures. A. Article 3 B. Article 5 C. Article 6 D. Article 9

Q: Under the common law, airlines were entitled to liens to secure the reasonable value of the services they perform because: A. they provided labor to improve personal property that belongs to someone else. B. they provided food and lodging to their customers. C. they were required by law to provide the service to anyone who seeks it. D. they made all their profits only through such liens.

Q: A common law lien essentially includes: A. only possession by the improver or provider of services. B. only a debt created by the improvement or provision of services concerning the goods. C. possession by the improver as well as debt created by the improvement. D. an improvement which does not become a part of the property.

Q: If there are cosureties and one of them has had to pay the principal's debt, the cosurety who paid the debt has a claim against the other cosureties because of: A. the right of subrogation. B. the right to contribution. C. the right of strict foreclosure. D. the right to reimbursement.

Q: A surety could avoid liability for a principal's default if the principal had refused to pay the seller-creditor because: A. the principal was a minor and therefore lacked the capacity to contract. B. the principal had filed for bankruptcy. C. the principal was induced to contract with the seller-creditor by fraud or duress. D. the principal was insane.

Q: (p. 871, 872) Accommodation sureties: A. are people paid for serving as a surety. B. are protected by the courts at a higher level than other types of sureties. C. have no protection from the court. D. are professional companies which take payment for acting as a surety.

Q: A surety's right to recover his/her costs from the principal once he/she performs or pays the principal's obligations is known as ___. A. the right to fair compensation B. the right of subrogation C. the right to reimbursement D. the right to contribution

Q: If the surety has to perform the principal's obligation, then the surety acquires all the rights that the creditor had against the principal. This is known as the surety's: A. right to contribution. B. right of subrogation. C. right to compensation. D. right to reimbursement.

Q: Amanda and Janice were cosureties for their friend Haley on a loan contract. When Haley failed to repay the loan within the stipulated time, Janice paid the whole obligation as her surety. Janice is now entitled to collect half the amount of liability from Amanda in accordance with her ___. A. right to contribution B. right of subrogation C. right to reimbursement D. right to compensation

Q: If Jack is a surety for John, Jack's right to reimbursement would include: A. the right to any collateral in the possession of the creditor. B. the right to recover from the principal the costs paid on the principal's obligation. C. the right to recover costs plus interest paid on the principal's obligation. D. all the rights that the creditor had.

Q: Which of the following statements is true for unsecured credit? A. Only consumers use unsecured credit for their personal transactions. B. The creditor may require the debtor to convey to the creditor a lien on the debtor's property. C. When goods are delivered on unsecured credit, the creditor retains all rights in the goods. D. The unsecured credit transaction involves maximum risk to the creditor.

Q: A surety: A. is liable for the performance of another person's duty. B. is not liable for the payment of the principal's debts. C. is held for higher liability than a guarantor. D. is not entitled to be reimbursed by the principal.

Q: John agreed to act as surety for a loan taken by his son, Frank, from the Third National Bank. The terms of the loan provided that Frank would pay the loan off in 12 monthly installments at 10%. If Frank renegotiates the terms of the loan with the bank and is now obligated to pay the loan off in 12 monthly installments at 9%, which of the following statements is true? A. Renegotiation of the note by Frank does not relieve John of liability as surety because the new terms are more favorable than the original terms. B. John must notify the bank in writing that he no longer wishes to act as surety in order to avoid liability under the new terms. C. John must notify Frank in writing that he no longer wishes to act as surety in order to avoid liability under the new terms. D. John is no longer obligated because his responsibilities as a surety cannot be changed without his consent.

Q: A guarantor is a person who: A. joins with the person who is primarily liable in promising to make the payment or to perform the duty. B. does not join in making a promise, but makes a separate promise and agrees to be liable on the happening of a certain event. C. is held for higher liability than a surety. D. has personal defenses if the principal refuses to pay.

Q: Which of the following defenses goes to the merits of a primary contract and can be used by a surety? A. Lack of consideration B. Lack of capacity C. Insanity D. Bankruptcy

Q: Strict foreclosure is normally limited to situations where the amount of the debt exceeds the value of the property.

Q: In a land sales contract, the seller usually retains legal title and does not turn over the deed until the property is paid for.

Q: In a deed of trust' transaction, the borrower deeds to the trustee the property that is to be put up as security.

Q: Persons who contract to furnish labor or materials to improve real estate are not entitled to claim a lien on the property.

Q: The owner (mortgagor) of property subject to a mortgage cannot sell the interest in the property without the consent of the mortgagee.

Q: The right of a lienholder to possess goods automatically gives him/her the right to immediately sell the property if the charges are not paid.

Q: The common law lien and most of the statutory liens are known as possessory liens.

Q: A guarantor's promise must be made in writing to be enforceable under the statute of frauds.

Q: A surety could avoid liability for a principal's default by using the principal's bankruptcy as a defense.

Q: The rights and liabilities of both sureties and guarantors are substantially equivalent.

Q: If the creditor allows the principal an extension of time to perform the contract, compensated sureties are relieved of liability unless they consent to the extension of time.

Q: Rita cosigned a promissory note for $500 at the Federal Credit Union for her friend Sue. If Sue defaults on the note, Rita can not only collect $500 from her but also get the Federal Credit Union's rights against Sue.

Q: A surety's right of subrogation means that if the surety has to pay the principal's obligation, the surety acquires all the rights that the creditor had against the principal.

Q: Describe the limitations on the bank's right or duty to charge the depositor's account for the check.

Q: Will a drawee bank be liable to the drawer of the check while a stop-payment order is in effect? If yes, under what circumstances will the drawee bank be liable?

Q: Explain the difference between a certified check, a cashier's check, and a teller's check.

Q: If you buy a pair of jackets and charge it to your MasterCard account, secured credit has been extended to you.

Q: A surety is a person who is liable for the payment of another person's debt.

Q: Which article of the Uniform Commercial Code covers electronic funds transfers between businesses and financial institutions? A. Article 1A B. Article 4A C. Article 3A D. Article 2A

Q: For improper execution or failure to execute payment orders, banks can be liable: A. to the originators, for their expenses in the transaction along with incidental expenses and interest losses. B. to the beneficiaries, for their incidental expenses. C. to the originators, for consequential damages. D. to both the originators and beneficiaries, for consequential damages even though the written agreement of the receiving bank does not provide for it.

Q: The Electronic Funds Transfer Act (EFTA) now addresses many of the issues that arise out of consumer use of EFT systems, while _____ of the Uniform Commercial Code deal/s with the funds transfers that are outside the EFTA. A. Article 4A B. Regulation E C. Articles 3 and 4A of the UCC D. Article 3 and Regulation E

Q: Which of the following is an electronic funds transfer system? A. Check truncation. B. Point-of-sale terminals. C. Expedited recredit.. D. Check 21.

Q: The EFTA differs from the FCBA regarding: A. consumer's liability when the EFT card is stolen. B. bank's liability if it makes unauthorized transfers. C. the consumer's liability for unauthorized electronic funds transfers. D. the financial institution's liability to the consumer for failure to make or stop payments.

Q: Which of the following statements is true of wire transfers? A. Article 4A, which covers wire transfers, includes consumer payments that are covered by EFTA. B. International wire transfer systems are known as " Fedwire." C. The Federal Reserve operates a domestic wire transfer system that can be made through CHIPS. D. Electronic funds transfers between business and financial institutions are generally referred to as wholesale wire transfers.

Q: If a bank pays a check that bears a forged signature of the drawer, the transaction will be treated as one in which: A. the bank paid out of the depositor's funds under Article 3 of the Uniform Commercial Code. B. the bank paid out of its own funds under Article 3 of the Uniform Commercial Code. C. the bank paid out of its own funds under Article 4 of the Uniform Commercial Code. D. the bank paid out of the depositor's funds under Article 4 of the Uniform Commercial Code.

Q: Bob makes a check for $100 in a way that makes it possible for someone to easily alter it to read $1,100, and it is so altered. Under these circumstances: A. If the drawee bank pays the check to a holder in good faith, it can charge the $1,100 to Bob's account if Bob's negligence contributed to the alteration. B. A drawee bank can charge the $100 to Bob's account and will be liable for the rest of the altered amount. C. The drawee bank is completely liable to Bob for accepting the altered check even if Bob's negligence contributed to the alteration. D. The person who altered the check is liable to the drawee bank and the bank cannot charge the $1,100 to Bob's account.

Q: Under Revised Article 3, when multiple forgeries are made by the same wrongdoer, the customer generally cannot hold the bank responsible for paying, in good faith, any such checks after an alteration was available to the customer for a reasonable period, not exceeding: A. 10 working days. B. 30 calendar days. C. 60 calendar days. D. 14 working days.

Q: (p. 858, 859) Which of the following is true of the Check 21 Act? A. It is a time-consuming and costly process. B. It is designed to enable banks to handle more checks electronically. C. It completely discourages check truncation. D. It requires banks to retain a legible copy of checks for fifteen years.

Q: Check 21 contains a special refund procedure, called "expedited recredit", for a customer who suffers a loss because of: A. the original check. B. a fraudulent check. C. a substitute check. D. a cashier's check.

Q: Callie drew a check payable to the order of Janice on American Bank. Janice indorsed the check and sold it to Ned, who took the check to American Bank and requested that the bank certify the check. The bank did so. Later, Ned presented the check for payment, but American Bank refused to pay. Which other parties may Ned sue? A. American Bank B. Callie C. Janice D. Callie and Janice

Q: Walt draws a check for $1,500 on Town Bank. The check is made payable to the order of Stephanie. Stephanie endorses and sells the check to Nita. At Nita's request, Town Bank certifies the check. Which of the following is a true statement? A. Stephanie is secondarily liable. B. Walt is secondarily liable. C. Town Bank is primarily liable. D. Walt is primarily liable.

Q: If a drawee bank certifies a check, which of the following is/are discharged of their liability on the check? A. The drawer only. B. Only persons who previously indorsed the check. C. The liability remains as before. D. Both the drawer and the persons who previously indorsed the check.

Q: A check on which a bank is both the drawer and the drawee is a: A. cashier's check. B. stale check. C. certified check. D. personal check.

Q: A check drawn by a credit union on its account at a bank is a: A. personal check. B. teller's check. C. certified check. D. stale check.

Q: A bank that knows of a customer's death: A. cannot pay checks written by the customer. B. can pay checks written by the customer for a period of 10 days. C. can pay checks written by the customer for a period of 14 days. D. cannot pay checks written by the customer till authorized by the heirs.

Q: If a bank pays a check after it is given a stop-payment order: A. it acquires all the rights of its customer against the person to whom it originally made payment. B. it acquires no rights of the person to whom it made payment. C. it acquires partial rights of its customer against the person to whom it originally made payment. D. the customer to whom payment was made retains all the rights.

Q: The time requirements for notice of postdated checks are similar to those required for: A. automatic transfers. B. stop-payment orders. C. drawer-depositor accounts. D. stale checks.

Q: A written stop-payment order: A. is valid for only 14 days and cannot be extended further even if written instructions are given to the bank by the customer. B. is valid for only six months unless confirmed in writing. C. is invalid. D. is valid for six months, and can be extended for another six months if written instructions are given by the customer.

Q: Bob purchased a new washing machine from a local department store. He paid for the washing machine by check. Two days later, Bob discovered that the washing machine did not work. Bob telephoned the bank and issued an oral stop-payment order on the check. Which of the following will be true for an oral stop-payment order? A. An oral stop-payment is not valid for more than 24 hours. B. An oral stop-payment is valid for only 14 days unless Bob confirms it in writing during that time. C. An oral stop-payment is not valid for more than 48 hours. D. An oral stop-payment order is valid for 6 months and can be extended for another 6 months by giving the bank instructions to continue.

Q: A person may stop payment on a check: A. as long as he/she is authorized to draw a check from the account in question. B. as long as he/she is authorized to draw a check from the account in question and he/she is the party who signed the check in question. C. as long as he/she has sufficient funds to cover any liability an erroneous stop-payment order would incur. D. after a month of the deposit of the check.

Q: Bill purchased a new car from Friendly Fred's Autos. Fred indorsed the check to Shirley for value. Shirley presented the check to the bank, and the bank cashed the check. Later, Bill attempted to place a stop-payment order on the check because the car he purchased from Fred was defective. Under these circumstances: A. the bank is liable to Bill for paying the amount of the check to Shirley. B. Bill has no remedy against Shirley or the bank. C. Shirley must return the funds to the bank. D. Bill can prove that he has sustained a loss.

Q: In the case of a bank that refuses to pay on a check drawn against an account with sufficient funds, which of the following actual damages would the bank be liable for? A. Charges imposed by retailers for returned checks. B. Damages for mental disturbance. C. Injury to the depositor's credit rating that result from the dishonor. D. Only damages for mental disturbance and injury to honor.

Q: Which of the following best describes a stale check? A. A check that has been written by the drawer for a date in the future which a bank can honor even before the date on the check. B. An incomplete check of the customer that is presented to the drawee bank for payment. C. A check that has been written by the maker dated at some point in the past, which can be paid and charged to the customer's account even at the present date. D. A check that is more than six months old for which a bank does not owe its customer a duty to pay out of the customer's account.

Q: If the drawer is negligent and contributes to the forgery or alteration of a check: A. the bank can charge the drawer for the amount as the drawer's negligence contributed to the forgery. B. the bank is liable to the drawer for the amount. C. the check is not payable from the customer's account because the bank is not following the instructions of the depositor. D. the bank must pay the instrument out of its own funds.

Q: On August 1, 1990, Lisa wrote a check for $100 payable to the order of her sister, Marcia. Marcia misplaced the check and found it in May 1991, when she attempted to cash it. Under these circumstances: A. the bank must honor the check. B. the bank cannot pay the check out of Lisa's account without Lisa's written permission. C. the bank may, in good faith, pay the check and charge it to Lisa's account. D. the check is no longer valid because it is a stale check.

Q: Under the Revised Article 4: A. a postdated check is not properly payable by the drawee bank until the date on the check. B. a postdated check presented for payment before the date on the check may be paid and charged to the customer's account unless he has given notice of it to the bank. C. postdating checks is illegal. D. a postdated check presented for payment before the date on the check will be returned to the customer and fees charged to his account.

Q: The Check Clearing for the 21st Century Act is commonly known as Check 21,and is a federal law that is designed to enable banks to handle more checks manually.

Q: As under the Fair Credit Billing Act, operators under the Electronic Funds Transfer Act are given a maximum of 90 working days to investigate errors or provisionally recredit the customer's account.

Q: Which of the following sources govern(s) the relationship between the depositor and the drawee bank? A. Only the deposit agreement. B. The deposit agreement and Article 6 of the UCC. C. Article 8 of the UCC. D. The deposit agreement and Articles 3 and 4 of the UCC.

Q: If a bank receives a properly drawn and payable check, there are sufficient funds to cover the check, and the bank wrongfully dishonors the check: A. the bank may be liable to the drawer only for the actual damages suffered by the drawer. B. the bank may be liable to the drawer only for the consequential damages suffered by the drawer. C. the bank is not liable for any damages to the drawer unless the bank dishonored the check intentionally, knowing it to be properly drawn and payable. D. the bank may be liable to the drawer for actual and consequential damages suffered by the drawer.

Q: Even if the drawer is negligent and contributes to the alteration of a check, he cannot be barred from claiming it as the reason that a particular check should not be charged to his account.

Q: Revised Article 3 recognizes the modern bank practice of retaining checks, and permits the bank to supply only a statement showing the item number, amount, and date of payment.

Q: If a person stops payment on a check and the bank honors the stop-payment order, the person is not liable to the holder of the check.

Q: The bank is primarily liable on a cashier's check.